U.S. Supreme Court, Kousisis v. United States, Docket No. 23-909

Wire Fraud and Conspiracy to Commit the Same (18 U. S. C. §§1343, 1349)

 

Fraudulent-Inducement Theory

 

Circuit Split

 

 

 

 

The Government charged Alpha and Kousisis with wire fraud, asserting that they had fraudulently induced PennDOT to award them the painting contracts. See 18 U. S. C. §1343. Under the fraudulent-inducement theory, a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property—regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss. We must decide whether this theory is consistent with §1343, which reaches only those schemes that target traditional money or property interests. See Ciminelli v. United States, 598 U. S. 306, 316 (2023). It is, so we affirm.

 

The circuits are divided over the validity of a federal fraud conviction when the defendant did not seek to cause the victim net pecuniary loss. Several circuits, now including the Third, hold that such convictions may stand. See, e.g., id., at 240–244; United States v. Leahy, 464 F. 3d 773, 787–789 (CA7 2006); United States v. Granberry, 908 F. 2d 278, 280 (CA8 1990); United States v. Richter, 796 F. 3d 1173, 1192 (CA10 2015). Others disagree. See, e.g., United States v. Shellef, 507 F. 3d 82, 108–109 (CA2 2007); United States v. Sadlar, 750 F. 3d 585, 590–592 (CA6 2014); United States v. Bruchhausen, 977 F. 2d 464, 467–468 (CA9 1992); United States v. Takhalov, 827 F. 3d 1307, 1312–1314 (CA11 2016); United States v. Guertin, 67 F. 4th 445, 450–452 (CADC 2023). We granted certiorari to resolve the split. 602 U. S. ___ (2024).

 

(…) The money-or-property requirement lies at the heart of this dispute. Although the lower courts once interpreted the phrase “money or property” as something of a catchall, we recently reiterated that the federal fraud statutes reach only “traditional property interests.” Ciminelli, 598 U. S., at 316. Schemes that target the exercise of the Government’s regulatory power, for example, do not count. See Kelly, 590 U. S., at 400; see also Cleveland v. United States, 531 U. S. 12, 23–24 (2000). Nor do schemes that seek to deprive another of “intangible interests unconnected to property.” Ciminelli, 598 U. S., at 315; see also McNally, 483 U. S., at 356. And in all cases, because money or property must be an object of the defendant’s fraud, the traditional property interest at issue “must play more than some bit part in a scheme.” Kelly, 590 U. S., at 402. Obtaining the victim’s money or property must have been the “aim,” not an “incidental byproduct,” of the defendant’s fraud. Id., at 402, 404.

 

 

 

 

(U.S. Supreme Court, May 22, 2025, Kousisis v. United States, Docket No. 23-909, J. Barrett)

U.S. Supreme Court, Kousisis v. United States, Docket No. 23-909

Fraud

 

Rescission of Contract

 

Common Law

 

 

 

When Congress uses a term with origins in the common law, we generally presume that the term “‘brings the old soil with it.’” Sekhar v. United States, 570 U. S. 729, 733 (2013). As petitioners note, we have long interpreted the statutory term “fraud” (and its variations) this way—that is, by reference to its common-law pedigree. See Neder v. United States, 527 U. S. 1, 21–22 (1999); Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. 176, 187 (2016) (“The term ‘fraudulent’ is a paradigmatic example of a statutory term that incorporates the common-law meaning of fraud”).

 

This old-soil principle applies, however, only to the extent that a common-law term has “‘accumulated a settled meaning.’” Neder, 527 U. S., at 21; Kemp v. United States, 596 U. S. 528, 539 (2022). So to show that economic loss is necessary to securing a federal fraud conviction, Alpha and Kousisis must show that such loss was “widely accepted” as a component of common-law fraud. Morissette v. United States, 342 U. S. 246, 263 (1952). They cannot.

 

At common law, “fraud” was a term with expansive reach. Rather than settle on a single form of liability, courts recognized at least three, and the particular elements and remedies turned on the nature of the plaintiff ’s alleged injury. To appreciate how the three forms differed, it may help to consider a variation of the facts here. Imagine that PennDOT discovered petitioners’ scheme soon after Alpha and Kousisis had begun work on the Girard Point and 30th Street projects. In such a circumstance, law and equity provided at least three avenues for relief: PennDOT could (1) seek to rescind the contracts; (2) refer the matter for indictment under the crime of false pretenses; or (3) bring a tort action against the fraudsters for the damages incurred. If PennDOT had wanted to rescind the fraud-infected contracts, most courts would historically have permitted it to do so even without a showing of economic loss. To obtain a rescission, PennDOT would have needed to establish only that it had “received property of a different character or condition than it was promised” (“although of equal value”) or, more relevant here, that the transaction had “proved to be less advantageous than as represented” (“although there was no actual loss”). W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §110, p. 766 (5th ed. 1984) (Prosser & Keeton). Put differently, many courts would have awarded the equitable remedy of rescission simply because Alpha and Kousisis had tricked PennDOT into a bargain materially different from the one they had promised. See Hirschman v. Healy, 162 Minn. 328, 331, 202 N. W. 734, 735 (1925) (“It is to be noted that it was not indispensable to prove damages in dollars and cents to have cancellation or rescission of the contract and note for misrepresentations”); Williams v. Kerr, 152 Pa. 560, 565, 25 A. 618, 619 (1893); Spreckels v. Gorrill, 152 Cal. 383, 391, 92 P. 1011, 1015 (1907). To borrow a summary from Black (of Black’s Law Dictionary fame) many “decisions repudiated altogether a rule requiring a showing of actual damage.” 1 H. Black, Rescission of Contracts and Cancellation of Written Instruments §112, p. 314 (1916).

 

 

 

(U.S. Supreme Court, May 22, 2025, Kousisis v. United States, Docket No. 23-909, J. Barrett)

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Insurance Law

 

Payments to Plaintiffs

 

Admission of Liability

California Law

 

 

 

The fact that Wawanesa made payments to plaintiffs even though there was no coverage is irrelevant. (See, e.g., State Farm Fire & Casualty Co. v. Superior Court (1988) 206 Cal.App.3d 1428, 1431 [“Because insurance companies often adjust claims for reasons entirely unrelated to their merits, [the insurance company’s] decision to pay money to the [insureds] may not be construed either as an admission of liability or as the substantive equivalent of accepting its obligations under the policy”].)

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

 

 

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Notice of Appeal

 

Motion for Summary Judgment

 

Judgment Actually Entered

 

Premature Notice of Appeal

 

California Law

 

 

 

Plaintiffs actually filed their notice of appeal prematurely—after Wawanesa’s motion for summary judgment had been granted but before judgment was actually entered. Given that judgment has since been entered, we deem plaintiffs’ premature notice of appeal to have been taken from the judgment. (Mukthar v. Latin American Security Service (2006) 139 Cal.App.4th 284, 288.) (Fn. 4).

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

 

 

 

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Triable Issue of Fact

 

California Law

 

 

 

It is well-settled that a party cannot create a triable issue of fact with a declaration that contradicts the declarant’s earlier deposition testimony. (Whitmire v. Ingersoll-Rand Co. (2010) 184 Cal.App.4th 1078, 1087; Visueta v. General Motors Corp. (1991) 234 Cal.App.3d 1609, 1613; Benavidez v. San Jose Police Dept. (1999) 71 Cal.App.4th 853, 860.)

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Insurance Law

 

Breach of Contract 

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Physical Loss

 

California Law

 

 

 

Following a wildfire near their home, plaintiffs and appellants Hovik Gharibian (Gharibian) and Caroline Minasian (Minasian) submitted a claim to their property insurer, defendant and respondent Wawanesa General Insurance Company (Wawanesa). Wawanesa ultimately paid plaintiffs more than $20,000 for professional cleaning services that they never used. Dissatisfied with the resolution of their claim, plaintiffs filed the instant lawsuit against Wawanesa for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted Wawanesa’s motion for summary judgment, and plaintiffs appeal. Because plaintiffs’ insurance policy did not provide coverage for the claimed loss, Wawanesa did not breach (and could not have breached) the insurance policy. Accordingly, we affirm.

 

 

Plaintiffs obtained a Wawanesa homeowner property insurance policy for their house in Granada Hills covering the period September 8, 2019, to September 8, 2020. In a section of the policy titled “Perils Insured Against,” the policy provides that Wawanesa will “insure against direct physical loss to property.” (Bolding & capitalization omitted.) The policy’s terms include a $2,000 deductible.

 

 

A nearby fire results in debris, but not burn damage, to plaintiffs’ house.

 

On October 10, 2019, the Saddle Ridge wildfire began in the foothills of northern Los Angeles County. The fire burned about half a mile away from plaintiffs’ property; plaintiffs’ property did not suffer any burn damage. Even though plaintiffs kept their doors and windows closed, debris still entered their home, with more debris falling outside their home and in their swimming pool. While there was the smell of wildfire smoke, it dissipated over time. In fact, Minasian testified that she could no longer smell the smoke by December 31, 2019, less than three months after the fire.

 

 

(…) By December 2019, plaintiffs were not aware of any visible wildfire debris that remained either outside or inside their home. Gharibian is not aware of anything at his property that was physically damaged.

 

 

The elements of a cause of action for breach of an insurance contract are (1) the contract, (2) the insured’s performance or excuse for nonperformance, (3) the insurer’s breach, and (4) resulting damages.  (Janney v. CSAA Ins. Exchange (2021) 70 Cal.App.5th 374, 390.) “‘“While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.”  [Citations.]’” (Westoil Terminals Co., Inc. v. Industrial Indemnity Co. (2003) 110 Cal.App.4th 139, 145.) Thus, we “interpret insurance policy language ‘“in its ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage.’”’ [Citation.] We must also ‘interpret the language in context.’ [Citation.]” (Tustin Field Gas & Food, Inc. v. Mid-Century Ins. Co. (2017) 13 Cal.App.5th 220, 226.) “The insured has the initial burden of showing that a claim falls within the scope of coverage, and a court will not ‘“indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.”’ [Citation.]” (Dua v. Stillwater Ins. Co. (2023) 91 Cal.App.5th 127, 136.)

 

 

Applying these legal principles, we readily conclude that the trial court did not err. In order to defeat Wawanesa’s motion, plaintiffs had to establish (or at least create a triable issue of fact) that their claim was covered by their insurance policy. Thus, they had to show that there was a “direct physical loss to property.”

 

 

“Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.” (Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, 1117 (Another Planet).) Here there is no evidence of any “direct physical loss to [plaintiffs’] property.” The wildfire debris did not “alter the property itself in a lasting and persistent manner.” (Another Planet, supra, 15 Cal.5th at p. 1149.) Rather, all evidence indicates that the debris was “easily cleaned or removed from the property.” (Another Planet, supra, 15 Cal.5th at p. 1140.) Such debris does not constitute “direct physical loss to property.” (Ibid.)

 

 

Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, cited by plaintiffs, is readily distinguishable. Armstrong dealt with third party liability coverage, which is “‘wholly different’” than first party property damage coverage. (United Talent Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821, 837.) Thus, Armstrong is not persuasive precedent in the instant context. (Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 701, fn. 16.)

 

 

Urging us to reverse, plaintiffs direct us to Mr. Benjamin’s deposition testimony that “ash can create physical damage to a structure,” and ash was detected at plaintiffs’ property. But plaintiffs ignore Mr. Benjamin’s qualification that ash only causes physical damage to property when it becomes wet, and no such damage existed on plaintiffs’ property.

 

 

In light of our conclusion that Wawanesa did not breach (and could not have breached) its insurance policy because plaintiffs did not have a covered claim, all remaining arguments raised by the parties are moot. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [without coverage there can be no liability for bad faith on the part of the insurer]; McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 1164 [no independent cause of action for punitive damages].)

 

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

Delaware Supreme Court, In re Alexion Pharmaceuticals, Inc. Insurance Appeals, Docket No. 154, 2024 / 157, 2024

Insurance Law

 

Contract Interpretation

 

“Meaningful Linkage” Standard

 

Notice of Circumstances

 

 

 

In claims-made insurance programs, the notice of circumstances benefits the insured. See Restatement of the L. of Liab. Ins. § 33 (Am. L. Inst. 2019) (explaining that a “notice of circumstances” clause “provides policyholders the option to secure coverage under an existing claims-made policy for a legal action that may be brought in the future”).

 

 

In this insurance coverage dispute, the issue on appeal is whether a Securities and Exchange Commission investigation, disclosed to its insurers by Alexion Pharmaceuticals, Inc., is related to a later securities class action brought against the company and others. If related, the securities class action is covered by Alexion’s first insurance tower. If not, it is covered by the second tower. Applying the “meaningful linkage” standard, the Superior Court found that the two were unrelated and placed the securities class action coverage in the second insurance tower. We find, however, that the securities class action – in the words of the policy – arose out of the circumstances disclosed by Alexion to its first tower insurers. Coverage should have been placed in the first tower.

 

 

The facts are largely undisputed. Alexion Pharmaceuticals, Inc. develops therapies for people living with rare disorders. Alexion was insured under two claims-made director and officer (“D&O”) liability insurance programs covering different periods. The first program provided $85 million of coverage for claims made between June 27, 2014 and June 27, 2015 (“Tower 1”). The second program provided $105 million of coverage for claims made between June 27, 2015 and June 27, 2017 (“Tower 2”). The two towers consist largely of the same insurers located in the same coverage layers. Both towers are structured as ABC directors and officers policies covering securities claims against the company. Each tower is composed of a primary policy and follow-form excess policies.

 

 

(ABC policies contain three insuring agreements. Side A covers directors’ and officers’ liability not indemnified by the company. Side B reimburses the company for indemnifying its directors and officers. Side C covers securities claims against the company. See A54 (Chubb Tower 2 Policy at 1); see also A158 (Chubb Tower 1 Policy at 1).) (Fn. 2).

 

 

Both towers also contain the following relevant provisions (“Limit of Liability Provision” and “Notice Provision,” respectively):

 

 

(…)

 

 

NOTICE (…): If, during a Policy Period or, if elected, the Extended Reporting Period, the Insureds first become aware of facts or circumstances which may reasonably give rise to a future Claim covered under this Policy, and if the Insureds give written notice to the Insurer during the Policy Period or, if elected, the Extended Reporting Period, of the identity of the potential claimants; a description of the anticipated Wrongful Act allegations; the identity of the Insureds allegedly involved; the circumstances by which the Insureds first became aware of the facts  or circumstances; the consequences which have resulted or may result;  and the nature of the potential monetary damages and non-monetary relief; then any Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer. No coverage is provided for fees, expenses and other costs incurred prior to the time such Wrongful Act results in a Claim.

 

 

On June 18, 2015, Alexion sent its Tower 1 insurers a notice (“2015 Notice”) disclosing Alexion’s receipt of the SEC Subpoena.

 

 

On December 29, 2016 – during the Tower 2 coverage period – Alexion stockholders filed a federal securities class action in the District of Connecticut (“Securities Class Action”). The stockholders alleged that Alexion and its directors and officers violated Sections 10(b) and 20(a) of the Exchange Act, as well as SEC Rule 10b-5. They cited a series of unethical and illegal sales and lobbying practices, including obtaining data from partner labs to identify potential customers, deploying extreme fear tactics to garner patients, and funding foreign organizations. They also alleged that, “despite Alexion’s efforts to cover up the Company’s misconduct, . . . the truth continued to slowly reveal itself” through partial disclosures.

 

 

On January 5, 2017, Alexion sent its Tower 2 insurers notice of the Securities Class Action (“2017 Notice”). Chubb, the primary insurer for both towers, initially accepted coverage for the Securities Class Action under Tower 2, but it laterreassigned coverage to Tower 1. Chubb justified the reassignment on the grounds that the Securities Class Action “arose from the circumstances and anticipated Wrongful Acts reported during the 2014–2015 Policy Period, as well as many of the same Wrongful Acts and Interrelated Wrongful Acts.” Chubb stated that the overlap included Alexion’s grant-making activities, its compliance with the FCPA, and its activities in Japan, Brazil, Turkey, and Russia.

 

 

On July 2, 2020, Alexion settled with the SEC for about $21.5 million (“SEC Settlement”). On September 12, 2023, Alexion settled the Securities Class Action for $125 million (“Securities Class Action Settlement”). Although the Securities Class Action Settlement exceeded  the coverage limits of each tower, Tower 2 provided $20 million more coverage than Tower 1. Thus, Alexion had an economic incentive to pursue coverage for the Securities Class Action under Tower 2. It demanded that the settlement be covered under Tower 2.

 

 

Alexion filed a coverage action in the Superior Court against Endurance, Hudson, Navigators, Old Republic, and Swiss Re. Alexion alleged that Endurance, Navigators, and Swiss Re (collectively, “Tower 2 Insurer Defendants”) breached their coverage contracts under the Tower 2 policies. Alexion also sought a declaratory judgment against these defendants that the Securities Class Action is a “claim” first made during the Tower 2 period. In the alternative, Alexion sought a declaratory judgment against Hudson and Old Republic that the Securities Class Action is a “claim” first made during the Tower 1 period.

 

 

Here, the policies’ relevant terms are unambiguous. Both towers contain a broad Notice Provision, which provides that “any Claim which arises out of any properly noticed Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer.” The Notice Provision is not limited to mature Claims like filed lawsuits. It includes a “notice of circumstances” where the insured can give notice when it “first becomes aware of facts or circumstances which may reasonably give rise to a future Claim” under the policy. In claims-made insurance programs, the notice of circumstances benefits the insured.  The insured can lock in existing insurance coverage for later related claims even though the facts and circumstances have yet to occur or might be somewhat different.

 

See Restatement of the L. of Liab. Ins. § 33 (Am. L. Inst. 2019) (explaining that a “notice of circumstances” clause “provides policyholders the option to secure coverage under an existing claims-made policy for a legal action that may be brought in the future”).

 

 

Under the Limit of Liability Provisions in both towers, “all Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts . . . shall be deemed to be one Claim . . . first made on the date the earliest of such Claims is first made . . .” In other words, all Claims arising out of a properly noticed Wrongful Act or Interrelated Wrongful Act are treated as a single Claim made on the earliest date the insurer received the insured’s written notice.

 

 

The parties do not dispute that Alexion’s 2015 Notice was proper under the Tower 1 policies. Rather, they dispute whether the Securities Class Action is a claim arising out of any Wrongful Acts or Interrelated Wrongful Acts disclosed by Alexion in the 2015 Notice. Tower 1’s Notice Provision language – “arises out of” – is undefined. Tower 2’s Prior Notice Exclusion language – “alleging,” “based upon,” “arising out of,” and attributable” – is also undefined. With no other textual evidence of the parties’ intent found in the policies, we interpret “arises out of,” and other  similar terms, as requiring some “meaningful linkage between the two conditions imposed in the contract.” Although these terms are “paradigmatically broad,” and we interpret them broadly, the linkage must be meaningful and not tangential. Thus, if the Securities Class Action is meaningfully linked to any Wrongful Act, including any Interrelated Wrongful Act, disclosed by Alexion in the 2015 Notice, the Securities Class Action is covered by Tower 1.

 

 

Upon de novo review, we find that the Securities Class Action is meaningfully linked to the wrongful acts disclosed in the 2015 Notice.  First, both involve the same alleged wrongdoing – Alexion’s grantmaking activities worldwide. The 2015 Notice disclosed that Alexion had received a SEC Subpoena “requesting information related to Alexion’s grant-making activities and compliance with the Foreign Corrupt Practices Act.” The 2015 Notice also disclosed that the SEC Subpoena sought information on Alexion’s activities, policies, and procedures worldwide, especially in Brazil, Japan, Russia, and Turkey.

 

 

Both the SEC investigation and the Securities Class Action involve the same underlying wrongful act – Alexion’s improper sales tactics worldwide, including its grantmaking efforts in Brazil and elsewhere.  Because both the SEC investigation and the Securities Class Action involve the same conduct, it does not matter whether the SEC and the stockholder plaintiffs are different parties, asserted different theories of liabilities, or sought different relief. It is the common underlying wrongful acts that control.

 

 

It is true that the SEC investigation and the Securities Class Action alleged non-identical time periods. But while not perfectly identical, they do meaningfully overlap.

 

 

Both investigations involved the same Wrongful Act – Alexion’s grantmaking activities. A meaningful linkage exists between the Securities Class Action and the SEC investigation as disclosed by Alexion in its 2015 Notice. Under the policies of both towers, the Securities Class Action claim is deemed to have been first made at the time the 2015 Notice was received by Chubb – during the Tower 1 coverage period. Therefore, coverage is under Tower 1. Applying the Prior Notice Exclusion provision of Tower 2, no coverage is available under Tower 2. The judgment of the Superior Court is reversed.

 

 

 

 

(Delaware Supreme Court, Feb. 4, 2025, In re Alexion Pharmaceuticals, Inc. Insurance Appeals, Docket No. 154, 2024 / 157, 2024)